WellPoint's third-quarter net income has exceeded company forecasts, due in part to operational efficiencies and less need for the insurer's services.
The Indianapolis-based insurer announced Wednesday that third quarter 2010 net income was $739.1 million, or $1.84 per share, including net investment gains of $37.9 million after-tax, or approximately $10 cents per share. Net income in the third quarter of 2009 was $730.2 million, or $1.53 per share, which included net investment gains of $14.1 million after-tax, or $3 cents per share, and an impairment charge totaling $134.4 million after-tax, or 28 cents per share.
WellPoint CEO Angela F. Braly said the positive results were due to higher reserve development than anticipated by management, as well as improvements in lowering selling, general and administrative expenses, which resulted in $170 in savings compared with last year's third quarter. As a result of the third quarter results, the company announced it was raising its 2010 earnings yearly earnings forecast to $6.60 per share.
While the company credited improvements in operational efficiencies for the earnings boost, there were also significant savings in the use of services.
"Overall, medical cost trends are running below our original expectations for 2010, which we attribute to a variety of factors including a less intense flu season, stabilizing Cobra costs, our hospital contracting and medical management initiative and the generally weak economy," said Wayne S. DeVeydt, WellPoint's executive vice president and CFO.
While a weak economy may not portend improved results in many industries, for health insurers, a weak economy usually leads to an increased number of members who are receiving COBRA benefits as a result of job losses.
While unemployment began its surge in early 2009, people receiving COBRA benefits also surged. Federal subsidies have made it easier for the unemployed to remain on their employers' health plans, and folks who pay money out of pocket for continued coverage usually do so since they have existing medical conditions they need to pay for. As a result, people on COBRA tend use their benefits at a higher rate than an average member, which generates a higher number of claims.
With the 18-month window for continuation of benefits under COBRA expiring for many people, insurers are seeing a drop-off in claims.
"In general, utilization is not in and of itself falling off the charts," DeVeydt told the Washington Post. "It's more a function of what you saw last year being abnormally high and this year being normal."
WellPoint is the second largest health insurance company in the country and operates Blue Cross and Blue Shield plans in 14 states. It has more than 33 million members enrolled in its programs.